Fannie Mae And Freddie Mac Are Government
By Amy Loftsgordon, Attorney
You’ve probably heard of Fannie Mae and Freddie Mac, but do you know what they do? The Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation are often called “government-sponsored enterprises” . These entities are privately owned, but they get support from the federal government. The GSEs play a significant role in the mortgage market; in fact, Fannie Mae and Freddie Mac own or guarantee many of the mortgages in the United States.
If you have a Fannie Mae or Freddie Mac loan and are having trouble paying your mortgage or are facing a foreclosure, various workout options are potentially available to you. Homeowners with a Fannie Mae or Freddie Mac loan, for instance, have access to specific mortgage-relief options after suffering a financial hardship due to the coronavirus pandemic. For example, if you received a COVID-19 forbearance, you won’t necessarily have to repay skipped amounts in a lump sum when the forbearance period ends. Under Fannie Mae and Freddie Mac guidelines, you might qualify for:
- a repayment plan if your financial hardship has been resolved
- a modification that adds the missed payments to the balance of the outstanding loan
- a modification that reduces your monthly payment, or
- a plan to pay the skipped amounts through a COVID-19 payment deferral program in which the lender defers repayment of the missed amounts until the end of the loan.
Fannie Mae Bulk Delivery Loans
If you’re a large investor or developer looking to rapidly expand your portfolio of multifamily projects, Fannie Mae has a custom solution designed just for you; the Fannie Mae Bulk Delivery Loan. Intended specifically for investors who want at least $55 million in financing to purchase a group of multifamily properties, Bulk Delivery Loans offer terms of between 5 and 15 years and LTVs of up to 80% . Plus, these loans are non-recourse, and are fully assumable
What Do Fannie Mae And Freddie Mac Do
Fannie Mae and Freddie Mac have similar charters, mandates, and regulatory structures. Each buys mortgages from lenders to either hold in their portfolios or repackage as MBSs that can be sold. In turn, lenders use the money they get from selling mortgages to originate more loans. This helps individuals, families, and investors access a continuous and stable supply of mortgage funding.
According to their charters, Fannie Mae and Freddie Mac “establish secondary market facilities for residential mortgages provide that the operations thereof shall be financed by private capital to the maximum extent feasible.” Both entities are mandated to do the following:
- Maintain stability in the secondary market for residential mortgages
- Respond appropriately to the private capital market
- Offer ongoing support to the secondary market for residential mortgages by increasing the liquidity of mortgage investments and making more money available for residential mortgage financing
- Promote access to mortgage credit by increasing the liquidity of mortgage investments and making more money available for residential mortgage financing
Fannie Mae has one additional responsibility according to its charter: to manage and liquidate federally-owned mortgage portfolios to minimize any adverse effects on the residential mortgage market and minimize losses to the federal government.
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Role In The Financial Crisis Of 2008
With a funding advantage over their Wall Street rivals, Fannie Mae and Freddie Mac made sizable profits for more than two decades throughout the 1990s and early 2000s. Over this time period, there was a frequent debate about Fannie and Freddie among economists, financial market professionals, and government officials.
Did the implied government backing of Fannie and Freddie actually benefit U.S. homeowners? Or was the government just helping the companies and their investors while creating a moral hazard?
Fannie Mae and Freddie Mac were given a government-sponsored monopoly in a large segment of the U.S. secondary mortgage market. This monopolyâcombined with the government’s implicit guarantee to keep these firms afloatâwould later contribute to the mortgage market’s collapse.
In 2007, Fannie Mae and Freddie Mac began to experience large losses on their retained portfolios, especially on their Alt-A and subprime investments. In 2008, the sheer size of their retained portfolios and mortgage guarantees led the FHFA to conclude that they would soon be insolvent.
On March 19 of that year, federal regulators allowed the two firms to take on another $200 billion in debt in the hopes of stabilizing the economy. However, by Sept. 6, 2008, it was clear that the market believed the firms were in financial trouble, and the FHFA put the companies into conservatorship. They received $190 billion in bailout funding and have since paid it back but are still in conservatorship.
What Does Fannie Mae Do What Does Freddie Mac Do
Fannie Mae and Freddie Mac provide stable funding for the housing and mortgage markets, but they don’t make loans directly to home buyers. Instead, the GSEs support the nation’s housing finance system through the secondary mortgage market by purchasing or guaranteeing home mortgages.
Here’s how the secondary mortgage market works: A borrower typically gets a home loan directly from a bank or mortgage company. In most cases, though, the original lender won’t hold on to the loan. Lenders usually sell the loans they originate to other banks or investors, like Fannie Mae or Freddie Mac, on what’s called the secondary mortgage market. The mortgages that the GSEs buy must meet strict criteria. These loans are called “conforming loans.” After purchasing loans from banks and mortgage companies, the GSEs either hold the mortgages in their portfolios or aggregate them into debt securities called mortgage-backed securities, which are then sold to investors. This process is called “securitization.” To reduce the investors’ risk, Fannie Mae and Freddie Mac often guarantee payment of principal and interest on their mortgage-backed securities in exchange for a fee. By guaranteeing the loan, the GSEs agree to pay the investor even if the borrower defaults.
Because Fannie Mae and Freddie Mac continually purchase mortgages from banks and mortgage companies, lenders have a steady cash source to keep making loans to new borrowers.
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Jumbo Vs Conforming Loan: What’s The Difference
From big and small to high-interest and low-interest, mortgages come in all shapes and sizes. The two most common types are jumbo, or non-conforming, and conforming. To understand the difference between the two, let’s touch on federal loan limits.
The Federal Housing Finance Agency sets conforming loan limits annually. Loan limits determine whether mortgages are eligible for purchase by Fannie Mae and Freddie Mac. Mortgages that fall within these limits are considered conforming. Mortgages that fall outside these limits are considered non-conforming.
The government uses two businesses Fannie Mae and Freddie Mac to purchase conforming mortgages. That makes regular mortgages less risky for lenders to issue. But what happens when you need a house that costs more than the limit?
Some lenders will let you take out a jumbo mortgage. These are non-conforming mortgages used to finance mortgages over the FHFA loan limit. These mortgages are typically kept by the lender and are not guaranteed or insured, which makes them riskier. Every jumbo lender will have its own standards for making these loans.
Fannie Mae Standard Fha Risk Sharing Execution
Fannie Mae provides a variety of options for the financing of Multifamily Affordable Housing developments. However,;Fannie Mae’s Standard FHA Risk Sharing Execution is a particularly smart choice for increasing borrower leverage while reducing monthly debt service.;Fannie Mae’s Standard FHA Risk Sharing Execution allows LTVs of up to 90% “as stabilized”, and flexible terms and amortizations up to 40 years. In addition,;Standard FHA Risk Sharing Execution loans are non-recourse, and are fully assumable ,;making them a highly effective way for investors and developers to finance MAH properties without deploying excess capital.
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Fannie Mae Green Financing
What if you could save money on your Fannie Mae multifamily loan while supporting the environment? Well, with Fannie Mae’s Green Financing programs, now you can. These programs include the Green Rewards program, which allows 5% more in loan proceeds in order to make green improvements, the Green Preservation Plus program, which permits higher LTV allowances and lower DSCR requirements for affordable properties that are making green improvements, and the Green Building Certification Pricing Break program, which provides a 0.10% interest rate discount to borrowers using a Fannie Mae loan to purchase or refinancing a building with an up-to-date Green Building Certification. In fact, all three programs qualify for the 0.10% interest rate discount, making Fannie Mae Green Financing increasingly popular for all kinds of Fannie Mae multifamily borrowers.;
here to download our easy-to-read Fannie Mae Green Rewards term sheet.
Qualifying For A Jumbo Mortgage
The qualification process for a jumbo loan is similar to the conforming loan process. The lender will review your assets, income and credit score, but there are some differences.;Jumbo loans typically have higher qualification standards than conforming loans since lenders take on extra risk with jumbo loans. Because of this, lenders are looking at several key factors to determine your risk level. Generally, this means higher credit, income and cash reserve requirements.
Here are some of the main qualification differences between jumbo and regular mortgages.
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How Much Can This New Option Save Me
Like we alluded to earlier, to ensure low-income homeowners genuinely benefit from these new offerings, lenders have some requirements they must meet when completing these refinances:
- The refinance must result in a savings of at least $50 per month on the borrowers mortgage payment.
- There must be a reduction of at least 0.50% to the borrowers interest rate.
Additionally, borrowers can benefit from an up to $500 appraisal credit if theyre not already eligible for an appraisal waiver.
These new programs from Fannie Mae and Freddie Mac are exciting because they will allow even more homeowners to enjoy the cost savings that refinancing can offer. We encourage you to get in touch with a loan officer today so that youre ready to take advantage of RefiNow or Refi Possible as soon as they hit the market.
Fannie Mae And Freddie Mac During The 2008 Housing Crisis
While there were several causes of the economic recession of 2008, some experts blamed Fannie Mae and Freddie Mac for the housing crisis. These organizations started to move away from only buying conventional loans and also began dealing in subprime loans.
Subprime loans are loans that come with a higher risk because borrowers dont adhere to the same stringent qualifications. Some of these loans were based on negative amortization, which means that homeowners only paid interest on the loans and thus never obtained home equity. When the financial crisis hit, many of these borrowers defaulted on their loans, thus causing the crash.
As a result, Fannie Mae and Freddie Mac were placed in federal conservatorship. Conservatorship happens when a person or entity is appointed to gain oversight and control of a company to bring it into a stable and solvent condition. Fannie Mae and Freddie Mac remain in federal conservatorship to this day.
During the financial crisis of 2008, the U.S. government spent $187.5 billion bailing out Fannie Mae and Freddie Mac. The money has since been repaid to U.S. taxpayers and the U.S. Treasury, and both organizations are once again profitable. There has been recent talk of taking them out of conservatorship and having them held once again as private entities.
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What Role Did Fannie And Freddie Play In Inflating The Housing Bubble Of The Mid
Contrary to conservative talking points, the answer is very little. During the bubble, loan originators backed by Wall Street capital began operating beyond the Fannie and Freddie system that had been working for decades by peddling large quantities of high-risk subprime mortgages with terms and features that drastically increased the chance of default. Many of those loans were predatory products such as hybrid adjustable-rate mortgages with balloon payments that required serial refinancing, or negative amortization, mortgages that increased the unpaid balance over time.
Wall Street firms such as Lehman Brothers and Bear Stearns packaged these high-risk loans into securities, got the credit-rating agencies to bless them, and then passed them along to investors, who were often unaware or misinformed of the underlying risks. It was the poor performance of the loans in these private-label securitiesthose not owned or guaranteed by Fannie and Freddiethat led to the financial meltdown, according to the bipartisan Financial Crisis Inquiry Commission, among other independent researchers.
These decisions eventually contributed to the companies massive losses, but all this happened far too late to be a primary cause of the housing crisis.
Fannie Mae And Freddie Mac: 2008 Bailout
At the time of the 2008 financial crisis and collapse of the housing market, Fannie Mae and Freddie Mac owned or guaranteed 40% of all home loans in the U.S. $5 trillion worth of loans in danger of default, CNBC reported. The Treasury Department bailed them out to keep them afloat, and the federal government took them over by placing them in conservatorship. The GSEs were required to pay a 10% dividend on the bailout money.
The $191 billion bailout worked. As of early 2021, Fannie Mae and Freddie Mac had paid the government about $301 billion in dividends, resulting in about $110 billion in profit for the government, but they hadnt yet repaid any of the principal.
As a result of the crisis and the role subprime mortgages i.e., bad-credit loans played in the crash, the Consumer Financial Protection Bureau established rules requiring mortgage lenders to verify consumers ability to repay their loans before extending them credit.
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What Is The Adverse Market Fee
This is a fee introduced in late 2020 which added a fee to most refinances equal to 0.50% of the loan amount.
For example, on a $250,000 mortgage, the refinancing homeowner had to either pay a $1,250 fee out-of-pocket, roll it into the new loan, or accept a higher interest rate in lieu of the fee.
The fees goal was to compensate for greater risk in the market due to the coronavirus pandemic.
Yet, it was just enough to keep many homeowners from refinancing.
Mortgage Relief And Foreclosure Moratorium During The Coronavirus Pandemic
Homeowners with federally backed mortgage loans, like ones that Fannie Mae or Freddie Mac purchased or securitized, can get a forbearance. And the Federal Housing Finance Agency , which regulates Fannie Mae and Freddie Mac, suspended foreclosures through July 31, 2021, because of the coronavirus pandemic. The foreclosure moratorium applies to Fannie- and Freddie-backed, single-family mortgages.
Fannie and Freddie’s REOeviction moratorium lasts through September 30, 2021, and applies to properties that Fannie Mae or Freddie Mac have acquired through foreclosure or deed in lieu of foreclosure transactions.
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Fannie Mae Seniors Housing Loans
With 10,000 Americans reaching retirement age every day, there’s never been more of a demand for high quality senior housing options. Fortunately, if you’re an investor or developer interested in acquiring a senior housing development, the Fannie Mae Seniors Housing Loan can be a highly cost-effective way to do so. With loan terms and amortizations up to 30 years, and fixed and variable-rate interest options, Fannie Mae Seniors Housing loans have enough flexibility to finance almost any large independent living, assisted living, or Alzheimer’s/Dementia care facility. These loans start at a minimum of $5 million, have a maximum LTV allowance of 80%, and are fully assumable ;
here to download our easy-to-read Fannie Mae Seniors Housing Loan term sheet.
Helping Homeowners When A Refi Doesnt Pencil Out
Two new programs Fannie Maes RefiNow and Freddie Macs Refi Possible could soon help many homeowners refinance less expensively.
One of the barriers to refinancing is the high cost.
Millions of homeowners missed out on the refi boom of 2020 because the refinance didnt pencil out: it would take too long to recoup the costs, especially for those with lower loan amounts.
These programs seek to do something about that.
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Watch Out For Address Errors
Note: If you own a condo or townhome, the search feature will often say there is no match if you put your street address and unit number in the separate boxes.
Instead, try putting it all in the street address box if youre pretty certain Fannie/Freddie owns your loan, but its not showing up as a match.
For example, put in 123 Fake St. Apt. A all in the address box as opposed to broken up in the condo or unit # box.
It might also be possible to get a match without even inputting your unit number. Just make sure it lists your name and everything looks right on the results page.
Also notice that youre required to check a box that says you are the owner of the property or you have the consent of the property owner to look up the information.
Why Did Fannie And Freddie Require A Taxpayer Bailout
Fannie and Freddie failed in large part because they made bad business decisions and held insufficient capital. Also, unlike most private investment firms, Fannie and Freddie had only one line of businessresidential mortgage financeand thus did not have other sources of income to compensate when home prices began to fall.
In 2008 Fannie and Freddie lost a combined $47 billion in their single-family mortgage businesses, forcing the companies to dig deep into their capital reserves. Nearly half of those losses came from Alt-A loans, despite those loans accounting for just 11 percent of the companies total business. But those losses were only the beginning: Between January 2008 and March 2012, Fannie and Freddie would lose a combined $265 billion, more than 60 percent of which was attributable to risky products purchased in 2006 and 2007.
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